Cloud business remains a profit engine, Amazon's cost-cutting measures are showing results.

According to the latest report from Dolphin Research APP, Amazon (AMZN.US) announced its third-quarter performance for 2023 on October 27th. The earnings report shows that Amazon's Q3 revenue was $143.1 billion, a YoY increase of 12.6%; net profit was $9.88 billion, compared to $2.872 billion in the same period last year; diluted earnings per share were $0.94, compared to $0.28 in the same period last year, significantly exceeding market expectations of $0.60.

Both revenue and profit announced by Amazon have exceeded analysts' expectations, mainly due to the growth in sales of the retail sector and significant cost reductions.

Operating profit increased from $2.5 billion in the same period last year to $11.2 billion. The average analyst expectation was $7.71 billion.

The company's central online store also achieved better-than-expected performance. The department's revenue was $57.3 billion, a 7% increase from the same period last year. This quarter includes Amazon's largest annual promotion, "Prime Day." Advertising sales increased by 26% to $12 billion, also higher than expected.

Cloud business still faces headwinds

Although the sales growth of the cloud computing division was slightly lower than expected, CEO Andy Jassy assured investors during the conference call that the business has stabilized and mentioned that the company has signed some deals that took effect at the beginning of this quarter. Influenced by his comments, the stock rose by about 4.8% in after-hours trading.

Jassy has won support from Wall Street this year by significantly reducing costs and focusing on improving profits. Under his guidance, Amazon is increasingly relying on services that often generate more revenue than its original online sales business, including advertising, logistics services for independent merchants, and renting computing power to enterprises.

Zak Stambor, an analyst at Insider Intelligence, said, "Last year's slowdown for this retail giant seems to be a thing of the past as it has started to significantly reduce costs this year and focus on key growth areas, such as high-profit online marketplaces—and the services it can sell to these sellers—and advertising."

The sales of Amazon Web Services (AWS), its cloud computing division, increased by 12% to $23.1 billion. The operating profit of this business was $6.98 billion, which is approximately $1.3 billion higher than analysts' expectations. AWS's profit often exceeds the total of the company's other businesses, and the company reported its highest operating profit margin since the first quarter of 2022.

Chief Financial Officer Brian Olsavsky did not say that AWS's growth has bottomed out. He explained that the department is facing some headwinds. This may indicate that the reduction in enterprise spending on cloud services has not yet ended, which may cause concerns among investors.

This result provides more evidence for Jassy's cost-cutting efforts. Jassy carefully reviewed the company's expenses. Amazon's sales and marketing expenses have decreased, at least for the first time since 2015. The growth in technology and infrastructure expenses, including software engineer salaries and AWS server costs, increased by only 8.8%, about one-fourth of a year ago. Holiday Season Sales Guidance Falls Short of Expectations

Amazon expects net sales in the fourth quarter to be between $160 billion and $167 billion, while market expectations are $167.04 billion, an increase of 7% to 12% compared to the fourth quarter of 2022. This guidance anticipates a favorable impact of approximately 40 basis points from foreign exchange rates.

Operating profit is expected to be between $7 billion and $11 billion, compared to $2.7 billion in the fourth quarter of 2022, with analysts' average expectations at $8.71 billion.

Olsavsky said that consumers are "spending, but cautiously and driven by deals," while Stambor from Insider Intelligence is more optimistic. Stambor stated that Amazon's "Prime Day generated $5.9 billion in e-commerce sales in the United States, an 8% increase YoY—giving it strong momentum as we enter the core of the holiday season."